Cash Flows Flashcards
How are contras handled when adjusting for the net cash provided by operating activities? (indirect method)
A contra account acts opposite to the account it is contra to.
Example…. allowance for credit losses
If this account increases, it is added to net income.
It is contrary to AR and if AR increases it is deducted from net income.
Under the indirect method, how are increases in current assets handled when calculating cash flow from operating activities?
An increase in current assets is deducted from net income. (Cash was not collected if AR increases)
Under the indirect method, how are increases in current liabilities handled when calculating cash flow from operating activities?
An increase in current liabilities is added to net income. (Cash was not sent out)
How is executive compensation (stock option) handled on the statement of cash flows?
It is reported as an operating activity and is a noncash expense, so it should be added to net income.
We must take the FV of the options/vesting period and multiply that by the number of months outstanding for the year.
How is the sale of merchandise recorded on the statement of cash flows, if we receive payment via a note?
The entire note receivable is represented as an operating activity, disregard any cash received, because it is related to the note, most likely.
What kind of activity is a dividend payment on the statement of cash flows?
Financing activity (outflow)
How do we handle the issuance of stock if we make a purchase?
We must make a supplementary disclosure on the statement of cash flows.
Under the direct method of reporting the statement of cash flows, how is the accrual of interest revenue handled?
Since it is an accrual, no cash was received so it would not be reported on the statement of cash flows.
How is the accrual of interest expense handled on the statement of cash flows under the indirect method?
Since it is a non-cash expense, it will be added back to net income.
